Why We Care

Why We Care

Trump’s Tax Plan Gives Greatest Benefit to Top Earners

Jul 24, 2017

A report by the Tax Policy Center (TPC) estimates that President Donald Trump’s tax proposals would decrease federal tax revenue by $3.5 trillion over the first decade after implementation and by another $5.7 trillion in the second decade. The highest-earning 1% of taxpayers would see their after-tax incomes increase by 11.5%, while the middle 20% would see an increase by 1.3%, and the lowest-earning 20% would see an increase of 0.3%.

TPC based its interpretation of Mr. Trump’s tax plan on the Administration’s tax reform outline released in April 2017 and statements made by the Trump campaign during the 2016 election. The plan’s tax cuts include repealing the Affordable Care Act’s 3.8% net investment income tax; repealing the alternative minimum tax; setting maximum individual income tax rates at 10%, 25%, and 35%; doubling the standard deduction; reducing the corporate income tax rate to 15%; reducing tax rates on income from pass-through businesses to 15% (from current individual income tax rates); and repealing the estate tax. These tax cuts would decrease federal revenue by $7.8 trillion over the first ten years. The plan’s provisions that could raise federal revenue include eliminating all individual income tax deductions, except for home mortgage interest and charitable contributions; repealing targeted tax breaks; repealing personal exemptions for taxpayers and their dependents; repealing the head-of-household filing status; treating distributions from large pass-through businesses as qualified dividends subject to individual income tax rates; and implementing an estate tax on unrealized capital gains above $5 million for individuals and $10 million for couples. These provisions could raise $4.3 trillion over the first ten years.

All of these provisions would increase after-tax income for the average taxpayer of any income. Higher-income taxpayers, however, would receive the highest average benefit and lower-income taxpayer very little. The highest-earning 20% of taxpayers would see an average decrease in their federal taxes by $13,160 and an increase in their after-tax income by 5.1%, while the lowest-earning 20% would see an average decrease of $40 in their taxes and an increase in their after-tax income by 0.3%. The highest-earning 1% of taxpayers would see an average decrease in their federal taxes by $174,540 and an increase in their after-tax income by 11.5%.

The Implications of What We Know and Don’t Know about President Trump’s Tax Plan is available at: http://tpc.io/2ufiHX7